Spotify Is Profitable, Says Analyst

Scott estimates Spotify's 2010 revenues at $85 million, with $65
million going back to the labels as royalties, about $14 million
on operating costs (offices, staff, servers), leaving roughly
$6-7 million in profits.

If so, that's a tremendous accomplishment for Spotify, since
nothing is bigger than the graveyard of online music startups.
Even Pandora,
which had a successful IPO, has yet to show profits. The
conventional wisdom is that people won't pay for online music and
record labels will crush online companies with royalty
demands.

The reasons of Spotify's success is how good it is at converting
free users into paid users.
Spotify leverages one of the key strengths of the freemium
business model: if you have a product whose value increases
over time, people will start paying up for it after using it. In
the case of Spotify, building and sharing playlists means after a
while you want to download them or take them on the road, which
means paying a premium subscription. (This writer has been a
happy Spotify Premium user for years.) Spotify also has
distribution deals with ISPs in Europe where people can sign up
easily for a Spotify subscription that's rolled into their
internet access bill.

Regardless of the numbers and whether Spotify was profitable last
year, or will be this year or the next, one thing is certain:
Spotify really is getting people to pay for music again.